By McKenzie Tate

Imagine your fifth birthday is tomorrow. All you want is the new Barbie dreamhouse. You wake up excited and run down the stairs, hoping to find the birthday present of your dreams waiting for you. Your dreams are crushed when you learn that your Barbie dreamhouse is still sitting on a port in Los Angeles, California. It may be weeks or even months until the dreamhouse makes its way to your doorstep. Unfortunately, overcrowded shipping ports are to blame for far more than just disappointing five-year-old girls on their birthdays; this congestion is affecting everyday Americans, like yourself, and the supply chain on a global scale

While the COVID-19 pandemic had an adverse effect on several aspects of the supply chain, it tremendously impacted California’s ports. According to Lisa Lacy, Adweek’s commerce editor, in November of 2021, at least 127,000 shipping containers had to wait nine or more days to dock in Los Angeles and Long Beach, California.²

This congestion is the result of:

• Labor shortages
• Rising shipping costs
• Increased consumer demand
• Asian port and factory shutdowns
• Skilled operator and raw material shortages

In order to increase the global supply chain’s ability to cope with port congestion and future disasters, supply chain executives should consider the benefits of (1) nearshoring production, (2) manufacturing locally, and (3) reevaluating transportation.

Nearshoring Production

Relocating production to nearby countries, or nearshoring, would reduce dependence on Californian ports and provide sustainable resource alternatives. Our nation’s over-reliance on China for raw materials is a leading cause behind port congestion. China’s domestic issues have negatively affected

the US on the receiving end on countless occasions. To increase resilience against future supply chain setbacks, Jason Seidl, transportation analyst for Cowen, reveals potential solutions, such as “diversify[ing] manufacturing in multiple countries, onshoring manufacturing… [and] bring[ing] more of the supply chain in-house.”³

Furthermore, Seidl mentions that to reduce risk caused by supply chain disasters, one retailer is wanting to “[diversify] its vendor supply network away from Asia to Mexico.”⁴

Mexico’s proximity to the US, coupled with its lack of trade complications, makes it the ideal country to relocate production to. John Schultz, transportation journalist, claims this desire to shift production to Mexico was a pre-COVID plan caused by trade disputes between the US and China.⁵

US companies should consider nearshoring production to Mexico and surrounding countries to reduce risk and avoid further trade complications overseas.

Companies should follow experts’ advice to gain geographic advantage; however, they need to be strategic about exactly where they will relocate.

Manufacturing Locally

Another solution to combat port congestion is moving production in-house and eliminating the need for a port altogether. Companies could obtain raw materials from local manufacturers and produce them domestically.

By not relying solely on Asia, companies would have secure back-up plans in place to shield against future calamities. They would also be able to ship goods quicker and with more reliability. To allow for more flexibility in the supply chain, Richard Lee, vice president at Foxconn, suggests companies expand their production options to the US and Europe. ⁶

This would give each supply chain local roots and reduce the shipping distance for goods. Consumers would be guaranteed to receive products on time without the risk of international travel complications. Not only will consumers enjoy their products sooner but also at a lower cost as expensive international shipping costs are cut.

In May 2020, the McKinsey Global Institute conducted a survey of supply chain leaders spanning various industries. According to the results of this survey, the majority of respondents plan to make their supply chains more resilient by relocating production and sourcing.8 Figure 1 (next page) ranks which planned actions are most popular.

Figure 1

According to Figure 1, supply chain executives prefer finding more reliable sources for supplies over other planned actions. This would be extremely beneficial because too many businesses have been relying solely on China for raw materials. We also see from the action chosen by 40% of respondents that businesses across industries are now wanting to choose suppliers located near their headquarters. This would greatly reduce the need for a port. Supply chains should focus on putting both plans into action to reduce port congestion and avoid the overuse of one resource.

Reevaluating Transportation

Beyond simply relocating sourcing and production, supply chains should reevaluate the diversification and ownership of their common transportation methods.

Diversification

The traditional supply chain model that relies on just one mode of transportation is no longer sustainable. An article featured in The Economist mentions that the world’s biggest container shipping firm, Maersk, is looking to diversify its services by “acquir[ing] more firms in e-commerce fulfillment and air-freight.” This change will strengthen their ability to transport “goods by sea, land, and air.”10 Because the port congestion has shown we cannot rely solely on sea transportation, companies should invest in transportation alternatives to stabilize the supply chain.

Ownership

Companies could solve current shipment problems by having complete ownership over the travel of international goods. Vicki Young, financial reporter at Sourcing Journal, claims investing in a private vessel may be worth it because “gaining greater control and speed more than offsets the near-term expenses.” She mentions this is the strategy for “Costco, Walmart, and The Home Depot” as they invest in “vessels to get ahead of supply chain headwinds.”12 If several big-name retailers made this purchase to avoid the risk associated with China, other companies would benefit by following suit.

The Bottom Line

To guarantee the supply chain does not continually disappoint five-year-old girls and the everyday American consumer we must rethink the logistics and geography of this industry. The pandemic spotlighted many weaknesses in the supply chain, and businesses should use this knowledge as momentum to build more sustainable supply chains moving forward. The port congestion has shown we cannot put all our eggs into the Chinese basket.

If you are a part of the US supply chain, begin (1) sourcing from nearby countries, (2) producing in-house where possible, and (3) increasing the ownership and variety you have in your modes of transportation. Making these changes will ensure your business is resilient and reliable to withstand another pandemic or whatever else the future holds.

With local production, supply chains would be less vulnerable to the cost and delay of international trade.

 

 

Notes: 

1 Dean Musgrove, The Port of Los Angeles, The Orange County Register, via Associated Press, The New York Times, Oct 18, 2021.

2 Lisa Lacy, “Supply Chain Issues Are Comin’ to Town,” Adweek, Nov 15, 2021, 8-9.

3 Jason Seidl, as quoted in Vicki M. Young, “Here’s when North American Supply Chain Congestion could Ease,” Sourcing Journal (Online) (Dec 13, 2021), accessed Feb 2022.

4 Ibid.

5 John D Schulz, “State of Logistics 2021: Full Speed Ahead,”

Logistics Management, (July 12, 2020).

6 Richard Lee, “The Lessons Companies Need to Learn from the Supply-Chain Crisis,” Barron’s (Online) (Oct 18, 2021), accessed Feb 2022..

7 Olena Panasovka, The Noun Project, accessed Feb 18, 2022.

8 Susan Lund, et al. “Risk, Resilience, and Rebalancing in Global Value Chains,” McKinsey Global Institute, August 2020.

⁹ Ibid.

10 “All at Sea,” The Economist, Dec 18, 2021, 51-52.

11 Becris, The Noun Project, accessed Feb 20, 2022.

12 Young, Vicki M. “Here’s when North American Supply Chain Congestion could Ease,” Sourcing Journal (Online) (Dec 13, 2021), accessed Feb 2022.